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Class III and cheese futures ended the week on a mostly lower note, which was somewhat surprising given the strength of the spot cheese market Friday. Both blocks and barrels tacked on 3 cents leading to a new 2016 price high for barrel cheddar at $1.72. But by the end of the day futures markets closed lower. Was it the 18 loads of barrel cheese that was sold Friday that influenced negative futures price action? Perhaps, but the argument could be made that there was a buyer for all 18 loads. We look at the situation from a slightly different vantage point.

The 2016 futures (and quite possibly the early 2017 contracts) appear rather range bound to us at this time. During the shortened holiday week, both 2016 class III and cheese futures spent two days lower and two days higher and is trading well-within its prior 4-week trading range. Very plainly, the futures market – although volatile – is very much tracking sideways.

Dialing in a little closer, Friday’s weakness is symptomatic of a weakening buy side. If spot cheese continues higher apace, perhaps the buy side will find new life. But for today, we’d estimate that any small spec buyer is already in the market and probably has as much as he/she would like to have on at this point. Commercial buyers are present, but have quite a bit more coverage already for 2016 so they are mostly scale-in buyers at best. The equation then leaves the futures market vulnerable to weakness even amid a firming spot market. We look for more of the same early this week. For reference, at $1.6300/lb. the block price is 9.50 cents below last year’s price. At $1.7200, the barrel price is 6 cents above a year ago.

Cheese holdings in selected storage centers as of July 4 were down 0.5% from the previous week, at 91.9 million pounds and 10.1% lower than year-earlier stocks.

Dairy Market Newsreports the cheddar cheese price for June 27 – July 8 in Oceania at $1.2928/lb., unchanged from the previous period. Dairy Market Newsreports the sweet whey powder price for June 27 – July 8 in Western and Eastern Europe at 31.75 cents per pound, up 0.57 cents from the previous period.

We look for Class III and Cheese to open steady to lower, Dry Whey firm.

Class IV, NFDM & Butter

Butter futures were not inspired by Friday’s unchanged bid during the spot call. Friday marked the second day in a row in which an unchanged bid during the spot call fell on deaf ears. Sellers were willing but above the market, back in the mid-$2.30s, late last week. We expect that to change this week. We think there is butter that will make its way to the exchange and it looks to us like there are buyers, but not a lot of worry at the moment. Look for butter to be steady/lower to begin the week.

USDA weekly butter stocks were down 2.8% from the previous week, but are 47.7% above last year.

The NFDM future mitigated a portion of their intra-session losses, though still settled down over a penny throughout the 2016 contracts, after a robust spot session. A total of 9 loads changed hands buy side interests pulled the spot value 2.500 cents off its low into the close. Ongoing domestic NFDM availability remains a concern as milk production in the West continues to trend lower as buy side hedge interests look for security ahead of the seasonal push into the holiday season. These interests will provide a measure of intermittent price support in the deferred contracts though current domestic price levels should be susceptible to further price declines.

We expect NFDM, Butter and Class IV to open steady/lower.

Grains

The grain complex closed out last week with strong gains thanks to short covering and the reemergence of concerns relating to late summer weather. The corn futures registered gains ranging from 13.25 to 14.25 cents in the 2016 contracts as several of the Northern Corn Belt states have missed out on the recent series of rains, leading to expectations for an overall decline in the corn crop conditions in the announcement later today. The announcement last week from CONAB relating to the significant decrease in the Brazilian corn crop has also provided some underlying support to the domestic markets. That being said, the CONAB decrease could easily be offset by the USDA’s projected increase in the U.S. crop based on the recently reported increase in corn acres.

The soybean futures tallied the largest gains of the day as the 2016 contracts soared 32.75 to 35.50 cent higher as technical selling eased as the nearly 50% retracement of the three plus month rally had been completed. Funds are thought to have closed out roughly half of their long positions on the recent downdraft as the trade again looks to weather models and export demand to drive this week’s price action.

Wheat futures gained 8.75 to 10.50 cents on a general lack of producer selling and short covering as export sales were reported at a stronger than expected level. French wheat ratings saw a 6% weekly decline though the global production picture still points to an enormous crop.

We look for corn to open 2-5 higher, soybeans up 9-12 with wheat up 2-6 cents.

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